Question

Place in order the events that take place in the long run, in a perfectly competitive market, when quantity supplied is greater than quantity demanded. Start by placing first item in the sequence a) Equilibrium is reached, where quantity supplied equals quantity demanded. b) Lowered price means negative economic profits. c) Negative profits are a signal to some firms to exit the market. d) As some firms exit, quantity supplied drops. e) Market surplus causes a drop in price

Answer 1

In a perfectly competitive market with excess supply, events in the long run include a drop in price, some firms exiting the market due to negative profits, a decrease in quantity supplied, and eventually reaching a new equilibrium where quantity supplied matches quantity demanded.

Step-by-step explanation:

In a perfectly competitive market, when quantity supplied is greater than quantity demanded, the following events take place in the long run:

1. Market surplus causes a drop in price - When there is excess supply, the price will tend to decrease to make the quantity demanded equal to the quantity supplied.
2. As some firms exit, quantity supplied drops - The negative profits signal firms to exit the market, which reduces the overall quantity supplied.
3. Negative profits are a signal to some firms to exit the market - When firms experience negative economic profits, it indicates that they are not earning enough to cover their costs, leading some firms to exit the market.
4. Lowered price means negative economic profits - When the price decreases due to excess supply, it reduces the economic profits of firms in the market.
5. Equilibrium is reached, where quantity supplied equals quantity demanded - Eventually, the market will reach a new equilibrium where the quantity supplied matches the quantity demanded, eliminating the market surplus.